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Sen. Lieberman Gives Vision of Regulation in Post-Enron Era

In remarks delivered at New York University's Stern School of Business, Sen. Joseph Lieberman said government should take six strong steps to repair the breach in trust caused by Enron's collapse. These include cracking down on executive misconduct, rooting out conflicts of interest, safeguarding workers' retirements, spreading credible information more rapidly and setting a better example of transparency in the federal government's own finances.

Equally important, he said, are strong self-regulatory steps that corporations should take to increase transparency, prioritize ethics and broaden stakeholder incentives. By adopting real-time disclosure of executives' stock sales, real-time investor voting and publishing a plain-language investor's bill of rights, among other trust-building innovations, companies can rebuild consumer and investor confidence, emphasized the chairman of the Senate Governmental Affairs Committee.

In his view, the Enron scandal is an important indicator of a broad, troubling trend in the business community. It highlights, in former SEC Chairman Levitt's words, markets awash in a "culture of gamesmanship." In Enron's wake, Sen. Lieberman called for a new corporate social contract. As part of this contract, he continued, laws must be refined so that executives become more accountable. Accounting firms, analysts and rating agencies must also improve the way they do business, he noted, and investors must be kept more informed.

More specifically, the senator stated that government has to develop better tools to fight corporate misconduct and make sure that directors uphold their fiduciary duties. When board members consistently fail to satisfy their fiduciary duty to shareholders, he opined, the SEC should have new disciplinary powers to remove them from any and all boards on which they serve. He also called on the SEC to refine the current model of earnings reporting, which he described as "too limited and opaque." The new approach should include both retrospective accounting and a company's future plans, encompass both financial and non-financial information, and place more emphasis on business risks and how management intends to mitigate them. In addition, the senator reasoned that it would be senseless to create new requirements for corporations without giving the SEC the ability to ensure that companies comply with them. The SEC needs to be fully funded, he declared.

Conflicts of interest must also be addressed. In this context, the chairman seeks to increase the independence of Wall Street analysts, whose incentives "too often seem to make them into stock salespeople rather than stock watchers." Similarly, credit rating companies must, using the inside information they have access to, anticipate and protect the markets, not just react to them. Also, the non-audit work that accounting firms can do for the companies they audit must be curtailed and an independent disciplinary body created to oversee the accounting industry.

Sen. Lieberman challenged corporations to offer real-time disclosure by senior corporate executives of sales of stock in their corporations. He further asked corporations to develop a uniform investor's bill of rights that would codify in plain language many SEC rules articulating investors' right to, among other things, fair capital markets, honest managers and full and fair disclosure.

As Dean Jeffrey Garten of the Yale School of Management has recommended, noted Sen. Leiberman, the president should create a task force of advisors on corporate policy, which would be a group of respected former CEOs and investor advocates to guide and monitor the government's post-Enron rules for corporations. It is envisioned that the task force would help shape the new standards for auditing and corporate governance, help craft new rules for analysts and credit agencies and offer non-partisan input on many related matters.